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Boehner to Dems: We Won’t Blink First on Debt Deal

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A year ago this month, House Speaker John Boehner went before the Economic Club of New York and laid down his demands for joining with President Obama and the Democrats in raising the federal debt limit: trillions of dollars in cuts and savings that matched the boost in borrowing authority and absolutely no increases in tax rates.

Yesterday, the Ohio Republican made similar preemptive demands in an address before a fiscal summit of lawmakers, budget experts, advocates and journalists in Washington as he assessed the prospects of averting another budget and tax policy tax train wreck after the November election. He made it clear that the debt ceiling would not be raised unless the cuts were made.

Boehner and Senate Republican Leader Mitch McConnell of Kentucky are feeling growing pressure from conservatives and Tea Party members in their party to take a hard line on spending, tax and regulatory issues. They took the same tack last July when the government came close to defaulting on its debt for the first time in history and Standard & Poor’s subsequently downgraded its AAA rating.

The political fault lines and tensions between the two parties heading into the crucial fall presidential and congressional elections were on full display yesterday during the third annual fiscal summit sponsored by the Peter G. Peterson Foundation.*

“When the time comes, I will again insist on my simple principle of cuts and reforms greater than the debt limit increase,” Boehner said in the closing speech of the day. “This is the only avenue I see right now to force the elected leadership of this country to solve our structural fiscal imbalance. If the president continues to put politics before principle – or party before country, as he often accuses others of doing – our economy will suffer and we may well miss our last chance to solve this crisis on our own terms,” he added.

Treasury Secretary Tim Geithner, who addressed the summit yesterday morning, warned Boehner against playing with the U.S. debt ceiling again. “We hope they do it without the drama and the pain and the damage they caused the country last July,” he said of Congress' role in the upcoming negotiations.

*Pete Peterson, chairman of the foundation, also finances The Fiscal Times.

DEADLINE LOOMSUnless Congress acts before the end of the year, the Bush era tax cuts and scores of other tax provisions are set to expire, literally driving up Americans tax obligations over night, while the first big installment of $1.2 trillion of automatic cuts in domestic and defense programs are set to take effect under sequestration.

At the same time, the Treasury will begin bumping up against the current statutory $16.39 trillion debt limit late this year, and will need new authority early next year to continue to borrow and pay interest on the national debt. Federal Reserve Board Chairman Ben Bernanke and other economists have warned that the government could be headed over a “fiscal cliff” that would undermine the fragile economic recovery unless Congress and the White House can reach a compromise on all these matters.

Boehner agreed in his speech that allowing the Treasury to default on its borrowing would be “irresponsible, while insisting that Republicans have no choice but to use the debt ceiling as leverage to force action on further reductions in spending, reforming Social Security, Medicare and Medicaid, and overhauling the tax code without raising rates. Republican House leaders say they will offset the cost of lowering everyone’s tax rates by eliminating costly tax loopholes, but they have yet to identify a single “tax expenditure” for elimination.

The speaker was highly critical of Obama, renewing his claim – strongly disputed by the White House -- that the president got cold feet last summer during their secret talks over a possible “Grand Bargain” of budget savings and tax reforms. “The difference between knowing what’s right and doing what’s right is courage, and the president, I’m sorry to say, lost his,” Boehner said.

NO ROOM FOR COMPROMISEIn outlining his new demands the speaker declared, “Just so we’re clear, I’m talking about real cuts and reforms, not these tricks and gimmicks that have given Washington a pass on grappling with its spending problem. What also doesn’t count as ‘cuts and reforms’ are tax increases, he added. “Tax hikes destroy jobs – especially an increase on the magnitude set for January 1st.”

Yesterday’s conference at the cavernous Andrew Mellon Auditorium in Washington was billed in part as a kind of gut check of the potential for bipartisan action this year to address the immediate problems of unemployment and slow growth and the longer term costs of health care and other entitlement programs that are driving up the national debt and interest costs.

The meeting drew some big names, including Geithner, former President Bill Clinton, House Budget Committee Chairman Paul Ryan, R-Wis., Sen. Rob Portman, R-Ohio, Rep. Chris Van Hollen, D-Md., and Rep. Xavier Becerra, D-Calif., who all offered their prescriptions for dealing with the growing financial crisis. Many of the participants noted that average Americans often have a clearer picture of what needs to be done than their elected officials.

VOTERS WANT A DEALA recent poll by Global Strategy Group commissioned by the foundation shows that voters overwhelmingly believe that the national debt is a major problem that must be addressed now – even if those solutions aren’t implemented until after the economy shows more life. Some 87 percent of those surveyed said they believe that Republicans will have to agree to some tax increases and Democrats will have to agree to some spending or entitlement cuts in order to reach a meaningful compromise.

Pete Peterson, the former Commerce Secretary and Wall Street financier, bemoaned, “Compromise seems to have become a dirty word in American politics.” The general tone of his conference seemed to confirm the assessment that there is little room for real compromise on Capitol Hill.

Van Hollen and Becerra said Democrats were unwilling to negotiate major savings in government programs, entitlements and other social services until Republicans abandon their inflexible opposition to “even a penny” of tax increases on wealthy Americans. They are insisting on a “balanced” approach that includes tax increases and spending cuts.

After months of fighting over tax and debt negotiations with Republicans in 2011, Obama and Democratic allies in Congress have found common ground on an “economic fairness” agenda that has emerged as the single, most unifying Democratic idea of the election season.

Becerra acknowledged that Democrats have been overly protective of entitlement programs for the poor and middle class, and that they would have to make some concessions, but that fresh tax revenue had to be part of the equation. “If you’re trying to load it all on domestic spending, you can’t do that,” he said. “You can’t do this without taxes.”

Van Hollen criticized Boehner for trying to draw a line in the sand. “As an economic and fiscal matter, it is absolutely reckless to threaten that the United States will not pay its bills,” he said. “That is not fiscal discipline that is fiscal irresponsibility.”

BALANCING ACTSRepublicans see “balance” as code for raising taxes on businesses and wealthy Americans, without coming to grips with the runaway costs of Medicare, Medicaid and other entitlement programs. The House this spring passed a Republican budget plan drafted by Ryan that would overhaul the major entitlement programs for younger Americans to control long term costs.

“If a balanced approach means never balancing the budget, that’s not the kind of balanced approach we want to have,” Ryan said. “A lot of folks who talk about having a balanced approach say just raise more tax rates but don’t deal with the structural drivers of our debt, don’t restructure the entitlement programs so that they can still fulfill their mission.”

Boehner said he was prepared to force a confrontation with Democrats with a series of votes on the House floor this spring and summer over raising the debt ceiling again, extending the expiring Bush era tax cuts and other key fiscal issues, instead of waiting until after the election to try to address these complicated issues. “Everyone knows what the menu is,” he said. “It’s just having the guts to make the choice.”

But the Democratic controlled Senate and the White House are not likely to deal with any of those issues in a substantive way until after the election at the earliest, and more likely sometime early next year. Clinton said that after the election, "The incentives will be for both parties to make more compromises than they have in the past.”

A FINGER IN THE DIKEMore likely, Congress will pass a number of stopgap measures to extend temporarily the tax cuts and possibly blunt the full impact of the automatic spending cuts on the Pentagon and some domestic programs in a lame-duck session immediately after the election.

The Republicans, of course, have their eye on winning back control of the White House and Senate, and are unlikely to try to negotiate another “Grand Bargain” of deficit reduction and tax reform until after they know just how much power they will wield beginning in January.

“I don’t think you will see a permanent resolution in a lame duck session,” Ryan explained. “I’m not sure that’s the appropriate place to do that. I think this election will largely be debated and fought and discussed over how to solve this problem. The people who win the election will have the obligation and mandate of the country to implement that solution. But I think in the lame duck you will see something to make sure we don’t have a train wreck.”

Washington Editor and D.C. Bureau Chief Eric Pianin is a veteran journalist who has covered the federal government, congressional budget and tax issues, and national politics. He spent over 25 years at The Washington Post.